Are Car Accident Insurance Settlements Taxable In New York?

More than likely, you won’t have to worry about your settlement being taxed, but contact us to review it for confirmation.

Most car accident insurance settlements are not taxable in New York. Whether or not your settlement can be taxed depends on the kinds of damages you are awarded and the structure of your settlement.

There are three types of damages you can recover through an injury case. These include punitive, economic, and non-economic damages.

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Punitive Damages in Car Collision Cases

Punitive damages are awarded in rare instances where the defendant acted with egregious negligence or malice. These damages are intended to “punish” the negligent party.

Are Punitive Damages Taxable?

While punitive damages may be taxed, they are rare in car collision cases. Compensatory damages, which pay for your losses instead of punishing the at-fault party, are much more common.

Economic Damages in Car Collision Cases

Economic damages are compensation for your financial losses caused by the crash. These damages are meant to compensate you for both your past and future injury-related expenses. Some compensable economic damages include:

  • Hospital bills
  • Doctors’ bills
  • Prescription medication costs
  • Physical therapy and rehabilitation
  • Psychological services
  • Home health care
  • Medical equipment costs
  • Lost wages
  • Lost earning potential
  • Funeral and burial expenses if you lost a loved one
  • Other out-of-pocket expenses

Are Economic Damages Taxable?

Since economic damages are a type of compensatory damage, they typically cannot be taxed. You are entitled to compensation that pays for your financial losses.  However, if you previously deducted medical expenses you receive in a recovery, you must report those expenses as income.

The IRS has summed up the taxability of personal injury recoveries in Publication 4345.

Non-Economic Damages in Car Collision Cases

Non-economic damages are meant to compensate you for your non-financial losses. After a serious crash, you may be suffering from physical pain, anxiety, depression, and the stress and inconvenience that comes with being wrongfully injured.

You deserve compensation for your physical pain, mental suffering, and emotional anguish. If you can no longer go about your day-to-day life without pain, or if you can no longer participate in the hobbies and activities you once enjoyed, then you may be able to recover non-economic damages.

Are Non-Economic Damages Taxable?

Since non-economic damages are compensation for your intangible losses caused by someone else’s negligence, they are not taxable. Instead, they are intended to make up for your physical pain and emotional suffering.

Are Non-Economic Damages Capped?

New York does not place caps on non-economic damages, like pain and suffering. There is no limit to what you can request via a lawsuit. Remember: insurance claims typically do not account for non-economic losses. To secure this type of damage, you could file a civil lawsuit.

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Circumstances That Could Impact Your Settlement Amount

The amount of your settlement can be impacted by more than just taxes. Here are some factors that can influence your settlement:

The Role Negligence Played in the Collision

To recover damages on your behalf, your personal injury lawyer will need to collect and present evidence that the other party was negligent, and this negligence caused your crash. Some common forms of negligent driving include:

  • Drunk driving
  • Drug-impaired driving
  • Distracted driving
  • Fatigued driving
  • Aggressive driving

If the driver who struck you was participating in these risky behaviors, then they may be held liable for your collision and injuries.

Proportionate Responsibility in Car Collision Cases

If you were partially at fault for the crash, then your settlement amount will be adjusted to reflect your negligence. This rule also protects your right to pursue damages despite having been less than perfect; it is not a zero-sum game.

So, even if you are concerned about your portion of responsibility for the crash, you could still reach out to our team to discuss your options. You may still be able to successfully recover damages through a claim or lawsuit.

Interest on Settlements

Your case could take a significant amount of time to resolve. If interest accumulated in that time, then that interest could be taxed.

The Statute of Limitations on Personal Injury and Wrongful Death Lawsuits

According to CVP §214, you generally have three years from the time of a car collision to file a lawsuit. If you lost a loved one to a car crash, you have two years from the date of their passing to file, per EPT §5-4.1.

There may be circumstances that shorten or lengthen this span of time. For example, if you are suing a municipality or pursuing an MVAIC claim, you may have less time in which to file an action. Alternatively, if you were a minor when injured you may have more time.

Reach Out Today for Your Free Consultation

At Rosenberg & Gluck, L.L.P., we serve injured clients throughout Long Island and the five boroughs, supporting them in their time of need and going after the compensation they deserve.

Let us help you and your family after you are injured in a car collision. Call Rosenberg & Gluck, L.L.P. today to learn more about how car accident insurance settlements are taxed in New York and to receive your free case evaluation. We offer bilingual services in both English and Spanish. The initial consultation is free and you owe us nothing unless you recover compensation.


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